TABLE OF CONTENTS When members contribute capital to their company, it forms what is known as the "creditors buffer", i.e. a pool of funds on which creditors can draw if the company goes into liquidation.
A particular problem in this context is what the Companies Act 1985 calls a serious loss of capital in a public company. This arises when net assets are 50 per cent or less of a plc's called up share capital: s142 CA85. Consider the following balance sheet.
| m | |
| Fixed assets | 1 |
| Net current assets | 2 |
| Net assets | 3 |
| Share capital | 6 |
| Profit and loss account | (3) |
| 3 |
On becoming aware of this situation, directors have 28 days to call an EGM to consider what steps are to be taken.
The meeting must be held within 56 days of the directors becoming aware of the position. In the event of default, directors are liable to a fine.
Private companies are not required to do so this because they have fewer members.
Under s135 CA85 a company can buy back or otherwise reduce its share capital. However three authorities are required for this procedure:
the power must exist in the Articles
a special resolution must be passed
the sanction of the court must be obtained.
If the reduction affects the creditors' buffer then their consent too is required.
S135 suggests three circumstances when capital may be reduced.
to cancel future calls on unpaid capital
to...
